- We maintain our BUY call on IJM Corp with an unchanged fair value of RM8.20/share (10% discount to NAV). Stripping of the gain from the disposal of the Jaipur Mahua tollway (RM169mil) and net forex movements, 1QFY16 core net profit was flattish YoY at RM141mil (QoQ: +17%).

- The lower property and construction earnings, mainly as a result of the completion of key projects in the previous financial year as well as slower property sales, were offset by a doubling of core infrastructure earnings (~RM75mil) and a 10% YoY boost in profits from its industries division (due to higher sales tonnage of piles).

- IJM is poised to ride on a new wave of infrastructure spending in Malaysia ahead of the 11th Malaysia Plan. This is in addition to further job prospects from West Coast Expressway and the Kuantan Port expansion, for which IJM is already involved in the initial phases.

- Given the prevailing property market sentiment and its multi-division earnings base, we believe IJM’s immediate priority for now is to liquidate existing inventories and preserve cash ahead of the next property upcycle.

- The pace of works for the Kuantan Port expansion program is picking up. The civil works for Phase 1 – currently undertaken by IJM – is due for completion by end-2016 ahead of its commissioning in 2017.

- An enlarged Kuantan Port is well positioned to benefit from the development of the Malaysia-China Kuantan Industrial Park (MCKIP), in which IJM has an effective 20% stake. Alliance Steel – the first strategic investor at MCKIP – will take-up up ~710 acres of the 1,439-acre MCKIP land to build a USD1bil stainless steel plant. This new facility could provide close to 8mil tonnes of cargo or roughly 60% of Phase 1 of this new deepwater facility once the mill commences operations by mid-2017.

- Roughly 24% or RM1.5bil of IJM’s borrowings are denominated in USD to mainly to fund its Indian concessions and plantation businesses. But, unless there is a prolonged weakness in the ringgit, the actual impact may not be as negative as earlier envisaged. First of all, some of its negative USD-exposures may be unrealised.

- Over in India, IJM has been proactively unlocking the value of its Indian concessions with the sale of Swarna Highway (RM597mil) being its third in two years. The bulk of repayments for its Indonesian plantation USD loans will only kick in three years from now – by then, refinancing is also an option.

- As at end-July, IJM’s foreign shareholding level of 33% is close to the trough level. The peak was around 67% back in 2007 during the IJM-Road Builder merger.

Source: AmeSecurities Research - 26 Aug 2015